by Gary Alexander

August 17, 2021

Louis Navellier has suggested that Wall Street close down for August and let everyone – investors as well as traders – take a vacation from all of the unnecessary “noise” of big moves from small-volume trades.

It won’t happen, of course. Brokers need their commissions. Broadcasters need to talk about something, and the Internet wouldn’t be the same without chatter about the latest “hot” stocks. On a grander scale, the world refuses to stop changing just because the warm sandy beaches invite us to take a much-needed rest.

Here are a few historical market hurricanes in the last 125 years when mid-August delivered dramatic market shocks. Most of them were positive surprises that made investors richer, so let the good times roll:

#1: AUGUST 16, 1896: Klondike Gold Saved the U.S. Treasury and Promoted Seattle into the Major Leagues: 125 years ago, George Washington Carmack, 35, discovered a huge deposit of gold on the Klondike River on Rabbit Creek near Dawson in Canada’s Yukon Territory, just across the border from Alaska. At the time, the Treasury was running low on gold and the dollar was in danger of devaluation.

William Jennings Bryan, the Democratic Presidential candidate, had just warned (on July 9) of a coming “crucifixion” on a cross of gold, but Klondike gold took the wind out of his pitch, so William McKinley and his Republican “Gold Bugs” won the 1896 election. Seattle, a small port on Puget Sound, also grew into a major metropolitan city as the jumping off spot to the Klondike gold rush for 100,000 prospectors. Seattle’s population grew from 42,837 in 1890 to 237,194 in 1910, up 454%, including my grandparents.

Klondike Gold Rush Images

#2: AUGUST 24, 1921: The “Roaring” 1920s Bull Market was Born, in a time of despair. A century ago, times were terrible. Even though the worst pandemic in the last 300 years or so was nearly over, the scourge of polio could strike anyone, anytime. On August 10, 1921, Franklin Delano Roosevelt, then 40 and Assistant Secretary of the Navy to lame duck (and stroke-ridden) President Woodrow Wilson, was himself stricken with “infantile paralysis” (polio) while swimming at his summer home on the Canadian island of Campobello. On Wall Street, the Dow Jones Index had fallen 46.6% from November 3, 1919, to August 24, 1921 in the midst of a deep depression, but then the Dow rose nearly 500% in eight years….

The “Roaring” 1920s Bull Market Images

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

#3: AUGUST 13, 1961: The Berlin Wall Bear Market was Born, then Rescued by the Kennedy Tax Cuts Exactly a Year Later. On an otherwise calm Sunday morning 60 years ago, the streets of Berlin, Germany were disrupted by the start of the construction of the 87-mile-long Berlin Wall. The Dow fell 25% in the next 12 months, but a shocking proposal from an unexpected source rescued the market….

#4: On AUGUST 13, 1962, Democratic President John F. Kennedy promised an “across-the-board, top-to-bottom” cut in corporate and personal tax rates, due to take effect on January 1, 1963. The Dow then shot up 6.61 points (over 1%) the next day and soared 24 points (+4%) in the next two weeks, as the radical tax cut plan took shape. Overall, the Dow gained 85.7% from mid-1962 to February 9, 1966.

Berlin Wall and Kennedy Tax Cuts Images

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

#5: AUGUST 15, 1971: Gold was Severed from the Dollar 50 years ago this week. I shared that story in detail last week. The bottom line was that a “free-floating dollar” sank like a rock and gold soared, but the part I didn’t tell was that Americans were forbidden to own gold for the bulk of its first rise – from $35 to $190 per ounce – from 1934 to the end of 1974. In 1974, the U.S. was mired in “stagflation,” a deep inflationary recession, marred by a disgraceful exit in Vietnam, the Watergate scandal, and Nixon’s resignation; but hidden in all that bad news a bill passed Congress and was signed by President Gerald Ford:

#6: AUGUST 14, 1974: Americans Were Allowed to Own Gold for the First Time in over 40 Years as of December 30, 1974, said a new law. Alas, gold’s price then went down and stocks soared in 1975, but at least Americans were allowed to own gold as it skyrocketed from $103 in 1976 to $850 in 1980.

Gold Ownership and Possession Images

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

#7: AUGUST 12, 1981IBM Introduced its Personal Computer (PC), which sold 136,000 units by the end of 1982, during the worst postwar recession (1981-82). This propelled IBM (a Dow component) to do its part to turn around that index exactly a year later. Less noticed were that the guts of the IBM Model 5150 ran on a 4.77 MHz Intel 8088 microprocessor using Microsoft’s MS-DOS operating system.

Navellier & Associates does own Intel Corporation (INTC), in managed accounts.  Navellier does not own International Business Machines Corporation (IBM) or Microsoft Corporation (MSFT). Gary Alexander does own Intel Corporation (INTC) he does not own International Business Machines Corporation (IBM) or Microsoft Corporation (MSFT) personally.

Those two stocks traded on NASDAQ, an index whose gains more than doubled the Dow or S&P 500.

Market Gains Table

#8: AUGUST 12, 1982: Exactly one year later, the Dow closed at 776.92 (let’s call it a Las Vegas jackpot of 777). It rose 15% in the next seven trading days at the start of the strongest multi-decade bull market of the 20th Century, up 15-fold in 17+ years. Why? First, Fed Chairman Paul Volcker slashed the Discount Rate. His first cut was a full point, from 12% to 11%. In all, the Fed cut the rate six times in the second half of 1982, down to 8.5%. Short-term (90-Day) T-bills declined from 13.3% to 7.8% in the third quarter and banks lowered their Prime Rate from 21% to 13%. This quick recovery surprised almost everyone. By August 1982, our economic malaise seemed permanent. From 1979 to 1982, we suffered 14 quarters of net negative growth. The doomsday press (including me at the time) was predicting another depression.

Biggest Bull Market Images

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

#9: AUGUST 19, 1991: The Market Gyrated (as Hurricanes Blew) During the Death Spasms of the Soviet Union. On Monday, August 19, the Dow fell 70 points, about 3%, in response to a startling turn of events in Russia. In the last gasp of the 45-year Cold War, eight senior “hard-liners” in the Soviet Politburo staged a coup against Mikhail Gorbachev, whom they detained under house arrest. They sent troops to take over Moscow, Leningrad, and the Baltics; but they forgot to arrest the elected President of Russia, Boris Yeltsin, who began to rally opposition at the Parliament Building. Soviet Vice President Gennady Yanayev said that Gorbachev was suffering “serious health problems” and was unfit to govern, but at the Parliament Building, Yeltsin led a growing crowd of protesters that included defecting troops.

As if this weren’t enough to worry about, Category 3 Hurricane Bob was heading to New York and New England with maximum sustained winds of 120 mph. Bob hit Rhode Island Monday and Maine Tuesday.

A Bracing Week Images

For the rest of that bracing week, the Soviet coup (and Hurricane Bob) began to unravel, as the Dow gained 142 points in four days, doubling Monday’s losses. On August 24, 1991: Soviet leader Mikhail Gorbachev resigned in favor of Yeltsin and August 29 marked the end of the 74-year-old Soviet Union.

P.S. The Berlin Wall has now been rubble longer (31+ years) than it stood (28+ years). The Dow rose from 720 to 2,600 while the Wall was up (+260%), not counting high inflation, which rendered this gain a wash, but the Dow is up from 2,600 to 35,515 (+1,266%) since the Wall fell, with lower inflation.

More the point, the Dow is now up 45-fold from Friday the 13th in 1982 when all looked dark, to Friday the 13th 2021, when some say all looks dark all over again. That’s 10% a year, compounded, for 39 years.

Take that to the beach, with a good history book, and take the rest of August off.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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